The ASX 200 Index (ASX XJO) is a market capitalization weighted index of the 200 largest companies listed on the Australia Stock Exchange. The index is a broader market index unlike the ASX 50 index, which includes just the top 50 companies list on the ASX. It s the “go to” benchmark for large cap funds.
There is an overlap of about 75% between the ASX 200 and the ASX 50 index. Even with an additional 150 companies to make up the rest of the top 200 list, the additional companies value only makeup 1/4 of the combined market cap of ASX 50.
There is no set weight or % for each stock in the index as each company’s contribution is relative to their make up to the aggregate value of all 200 companies. Each companies weighting fluctuates daily as the share prices change, the list of companies changes in the index changes quarterly as it rebalances.
ASX Index return vs Global Benchmarks
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How to buy the ASX 200 Index?
Investors can use 2 financial instruments to gain direct exposure to the index, with each has its own advantages and disadvantages for each investor.
SPI 200 Futures
ASX SPI 200 futures contracts allow traders to gain exposure to the index in a single transaction. The contracted is traded 24/7 and are available up to next 6 quarterly expiry month and 2 nearest nonquarterly expiry months. The upcoming expiry month or “front month” is the most liquid contract and when the contract expires, investors roll to the next front contract.
Index futures allows the option for larger investors to gain exposure to the index in one transaction. Each index point is worth $25 Australian dollars with a minimum price movement of 1 index point. For example, if the index is at 5000, the contract is worth $125,000. When the index goes up 4 points, the contract’s value would also increase by $100 dollars.
The downside of using futures is that the total exposure is lumpy, where the minimum position is 1 contract and has to be managed quarterly. It simply not efficient for long term investors and is designed for traders taking short term positions.
ASX 200 Index Performance
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The chart shows the performance of the ASX 200 index over the last year.
List of ASX 200 Stocks
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The list of ASX 200 stocks shows top 10 positions account for more than 40% of the index. Some of the best Australian shares are included in the index. These are blue chip shares all the investors know, such as the big 4 banks from the financials, BHP, Telstra and CSL.
Standard and Poors review the companies in the index quarterly and add/remove companies as their value warrants to be included or excluded from the ASX 200 index.
ASX 200 Sector Weights
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Looking at the ASX 200 index’s sector makeup, the obvious fact is that financials and materials make up almost 40% of the total. Healthcare comes third but this is mostly made up of CSL.
The index sector weight is one of the most diversified indexes out of the major Australian market indexes.
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One of the trends seen above is that miners and financials make up a large portion of the Australian market in every stratum of market indices.
ASX 200 ETF (ETF and Index Funds)
ETFs can provide a valuable contribution to the portfolio as it provides a direct replication exposure to the market index. ETFs or index funds can provide exposure to the index to the last dollar.
Long term investors can use a passive index fund below which track the ASX 200 Index because:
1. Very rarely can a fund manager consistently beat the market. Index fund gives investors a diversified portfolio of shares with limited active risk. The returns on the portfolio are the market return.
2. Cost Advantage: annual management fee for STW is 0.286% a year. Overtime, the savings from the index fund can add over the long run.
Two ETFs track the index, SPDR S&P/ASX 200 Fund (STW ASX) and iShares Core S&P/ASX 200 ETF (IOZ ASX).
The table below shows the ASX 200 dividend yield.
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As STW tracks the index, STW dividend yield is the same as the ASX 200 dividend yield.
ASX 200 Dividend Yield
As the index comprises companies listed in Australia and most of the companies’ earnings are from Australia. A significant portion of the index consists of Australian companies; the dividends paid include significant franking credits.